When to use and when to hold back.
In the 2007 case of Collier v P& M.J. Wright (Holdings) Limited the Court of Appeal discussed the circumstances in which it is appropriate to issue a statutory demand, and those circumstances in which there is sufficient doubt or dispute concerning a debt to render the attempted recovery of it unsuitable for the insolvency sphere. The case provides further useful guidance for both businesses and lawyers who routinely issue statutory demands in order to circumvent the more protracted route of litigation in either the High Court or the County Court.
An ill advisedly issued statutory demand spells bad news for a business, as it can be set aside, with the successful applicant recovering hundreds or, in some cases, thousands of pounds in costs from the person or business who issued the statutory demand. One can easily envisage a scenario in which a business or person is owed a relatively small sum, for example £1,000, and issues a statutory demand. The statutory demand is set aside, and the issuer is ordered to pay more than the disputed debt in costs alone. The test for when to, and when not to, issue a statutory demand should therefore be at the forefront of litigators and/or litigants’ minds when dealing with a claim to a fairly small sum, and/or a claim to which there is at least the semblance of a Defence.
The facts of the Collier case are not particularly arresting or relevant. The facts are probably of more relevance to a discussion on the doctrine of promissory estoppel. It is the comments made by Arden LJ concerning the test to be applied when deciding whether or not to issue a statutory demand which shall be the focus of this article.
Arden LJ pointed out that under Insolvency Rule 6.5(4) a court may grant an application to set aside a statutory demand where a debt is “disputed on grounds which appear to the court to be substantial”.
Further, in paragraph 13.4 of the Practice Direction on insolvency proceedings (Paragraph 12.4 at the time of the judgement) it is said that a statutory demand should be set aside where there is a “genuine triable issue”. The burden of proof in an application to set aside a statutory demand rests firmly on the shoulders of the party making the application.
The Judge discussed the unreported case of Keller v BBR Graphic Engineers (Yorks) Limited from 14 December 2001. Mr Roger Kaye QC, sitting as a Deputy Judge of the Chancery Division, had given that decision. Mr Kaye had remarked that it seemed to him to have been plainly intended that an application to set aside a statutory demand need only meet a threshold that is lower than that applicable to applications for summary judgment under Part 24 of the CPR. The rationale he gave for that analysis was that the serious consequences of a statutory demand meant that they should only be upheld in the most clear cut of circumstances.
The applicant in the Collier case seized on those comments and submitted that they meant that the applicant only had to show a “genuine triable issue”, rather than a “real prospect of success”, and asserted that such an issue was equivalent to a merely “arguable case”.
Arden LJ disagreed with the approach of Mr Kaye and referred to the recent case of Ashworth v Newnote Limited [2007] EWCA CIV C793 in which Lawrence Collins LJ said that the debate as to a difference between a “genuine triable issue” and “real prospect of success” involved only “a sterile and largely verbal question” before going on to say that there was no difference between the two.
It was said that whilst a refusal to set aside the statutory demand is a serious matter, so is the grant of summary judgment. If Mr Kaye were correct in his assertion, then on an application to set aside a statutory demand an applicant would have to show merely an arguable case. That would contradict the use of the word “substantial” in the Insolvency Rule, and the use of the word “genuine” in the Practice Direction.
Arden LJ concluded that the requirements of “substantiality” or “genuiness” would not be met simply by showing that there was an “arguable” dispute. It was said that in order for an application to set aside a statutory demand to be successful an assertion as to a dispute must be “sustainable”. In assessing whether an argument is sustainable the court should examine the evidence before it, and also make an assessment of the law on which the applicant’s case is based.
Arden LJ then discussed the evidence which should be produced. She said that the “best evidence” for the court would be “incontrovertible evidence to support the applicant’s case”. It would however, in general, “be enough if there were some evidence to support the applicant’s version of the facts, such as a witness statement or a document, although it would be open to the court to reject that evidence if it was inherently implausible or if it was contradicted, or was not supported, via contemporaneous documentation”.
A mere assertion by the applicant that something had been said or happened would not generally be enough if those words or events were in dispute and were material to the issue between the parties.
The end result was that there was no material difference on disputed factual issues between a “real prospect of success” and a “genuine triable issue”. A party which applies to set aside a statutory demand based on an implausible or inherently unlikely argument without any evidence to support it likely to find itself on the wrong end of an adverse costs order. On the other hand, a party which is considering issuing a statutory demand when there is a genuine or substantial dispute regarding the alleged debt, and evidence to support the position of the other party, should instead issue proceedings in the County Court or the High Court.
Gibson & Co
January 2008